How to Donate a Car to Charity

I just love tax time, don't you? I mean, getting to count up all those receipts, fill out those boring forms, and talk to accountants: What could be more fun? Well, there is one good thing about this time of year — getting a refund check back from the government.

For most of us, getting a tax refund usually involves having deductions that reduce our taxable income...and if you have a car parked in the driveway that isn't worth much, it could become a nice tax deduction for you. If that isn't enough, you also get the satisfaction of knowing that you are helping support a charity that is likely in desperate need of your donation (as many are these days). Even though we are past the point of deducting a car in 2010, it is always good to be planning ahead for when you are filing your taxes next year!

Tax Rules for Donating A Car

There have been some changes to the tax rules for donating a car. In previous years, people were able to write off the car for the fair market value of the vehicle. But people were claiming a lot more money than their cars were worth, so the process had to change. Due to the fraudulent behavior, the government was losing great amount of money, and you know Uncle Sam doesn't like that!

Under the new system, if you state that the car or vehicle is worth more than $500, you also need to record how much money the charity you chose sold it for (when I last donated a car to charity, the charity sent me a notice in the mail with this info). So if the charity sells your car for $1,000, then you can deduct $1,000. If they sell it for $1,500, then you can deduct that amount from your taxes.

Things to Have Ready

In order to donate your car, you have to take care of a few things. You need to be sure that you have the car title. If you don't have a copy of the title, you can get a duplicate by contacting the DMV. You also have to make sure the car registration is up to date. If you have not driven the car for several years, the registration is probably not valid.

Choosing the Charity

The charity has to be a 501(c)(3) registered charity recognized by the IRS. The IRS website has a page where you can search for charities in your area. Once you choose your charity, contact them, and let them know you want to donate your car. If the charity is near where you live, you can drive the car there yourself. Or if you live farther away from where the charity is located, you can have somebody come out and pick it up for you. I suggest checking out Charity Navigator to find out a little bit more about the efficiency of your charity before donating your old clunker.

Transferring Ownership

Whether you drive the car in yourself or have the car picked up, you'll need to sign over the title of the car to the charity. On the paperwork, write the word "gift" where it says to enter the sales price. Make sure you receive a copy of your receipt for the donation of the car. The receipt is absolutely necessary to get your tax deduction.

Though it may sound obvious, make sure you clean out the car. Empty the trunk, glove box, and any other compartments in the car, because once she is gone, you probably won't see her again! Also, unless your state laws dictate otherwise, remove your license plates when you hand them over — the last thing you want is for them to get into the wrong hands and you find that you have an warrant out for your arrest because someone used your plates when they robbed a bank.

Have you ever donated a car to charity? What was your experience?

This guest post is by Bob Lotich of ChristianPF.com, a website that approaches financial topics using timeless Biblical principles. Read more from ChristianPF.com:

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My husband and I both donated cars several years ago, before the IRS ruling. We thought it was odd that the organization handling the sale/donation gave us a sheet indicated blue book value (a way of determining fair market value-FMV) so we pressed the org to give us the exact amount of the donation. But apparently, their methods were in compliance with the IRS at the time. When the IRS changed the rules to actual value (still a bit subjective but to us that meant what the cars were sold for at auction), a lot of charities stopped the donation process as donors wanted the full blue book value.

The one thing that we appreciated about the go-between that we picked was that we could designate the charity, our church, rather than pick from a list or have the money go to a group that we had no relationship with. We asked the org to let us know how much the donation to the church would be for everyone's records. This worked out well to track the donation, even if it wasn't part of typical protocol.

I would have loved to keep driving my car -- a Ford Escort wagon with about 100K miles on it -- but it would randomly lose power at critical times, like driving down the highway at 60 mph. A few weeks after we donated the car, it turned out that Ford had saved money by substituting a dollar part for a $2.50 one, causing another part of the car to fail. Mystery solved. I don't think knowing the source of the problem would have helped.

Anyway, we liked having someone take the cars off our hands and getting a tax deduction as well.